UK inflation reached 3.5% in the year to April, primarily driven by increased household energy and water costs.
This figure surpasses the Bank of England’s 2% target. The Bank adjusts interest rates to manage inflation.
Despite recent decreases, the Bank anticipates a renewed rise in inflation this year. Interest rates have been reduced four times since August of last year, settling at 4.25%.
Inflation represents the gradual increase in the price of goods and services over time.
For instance, a 5% annual inflation rate for milk would mean a price increase from £1 to £1.05 over a year.
The Office for National Statistics (ONS) tracks prices of numerous everyday items, including food and fuel.
This “basket of goods” is regularly updated to reflect consumer trends; recent additions include virtual reality headsets and yoga mats (2025), while local newspaper advertisements have been removed.
The ONS calculates inflation by monitoring price changes over the preceding 12 months.
The primary inflation measure is the Consumer Prices Index (CPI), with the latest data released monthly. Learn more about CPI here.
CPI reached 3.5% in April 2025, increasing from 2.6% in March. Read more about the April 2025 CPI figures here.
This rise exceeded analyst predictions, attributed by the ONS to significant increases in household bills, particularly gas and electricity.
In addition to CPI, the Bank considers other metrics like “core inflation” when setting interest rates.
Core CPI excludes volatile food and energy prices, offering a clearer picture of long-term trends. In April, core CPI stood at 3.8%, up from 3.4% in March.
Inflation has significantly decreased since its 40-year high of 11.1% in October 2022.
However, this doesn’t signify falling prices; rather, the rate of price increases is slowing.
The 2022 inflation surge stemmed from increased oil and gas demand post-pandemic and further exacerbated by the Russia-Ukraine conflict.
Elevated food prices further contributed to inflation remaining above the 2% target.
To combat high inflation, the Bank of England raised interest rates to 5.25%, a 16-year high.
This strategy aims to curb spending by increasing borrowing costs and encouraging savings.
Reduced demand subsequently slows price increases.
This approach requires careful balancing, as increased borrowing costs risk economic harm.
For example, higher mortgage repayments can outweigh savings benefits for homeowners.
Businesses may also reduce borrowing, potentially leading to job cuts and decreased investment.
The Bank of England lowered rates in August and November 2024, and again in February and May 2025, reaching 4.25%.
Bank Governor Andrew Bailey attributed the May decision to declining inflation, hinting at potential further gradual rate cuts.
However, he cautioned about global economic unpredictability, citing the impact of new US tariffs, which are expected to slow UK economic growth and lower inflation.
The Bank previously projected inflation to peak at 3.7% between July and September 2025 before decreasing towards the end of 2027.
Recent official data indicates that regular pay in Great Britain outpaced inflation between January and March. Access the full report here.
Three-month average annual pay growth (excluding bonuses) reached 5.6%.
After adjusting for inflation, wages grew by 2.6% between January and March.
Private sector earnings slightly exceeded those in the public sector.
The US and EU are also actively managing inflation.
Eurozone inflation remained at 2.2% in April 2025, unchanged from March and slightly lower than February’s 2.3%.
In June 2024, the European Central Bank (ECB) reduced its main interest rate from 4% to 3.75%, its first decrease in five years.
Following eight rate cuts within a year, its key rate now stands at 2%.
US inflation fell to 2.4% in March, down from 2.8% the previous month but still exceeding the US central bank’s 2% target.
After a series of cuts in late 2024, the US central bank maintained rates at its May meeting, citing uncertainty surrounding the US tariffs.
Its key interest rate remains within the 4.25% to 4.5% range.
The Federal Reserve has faced criticism from President Trump, who advocates for further rate cuts.
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